Western Region Transition Planning
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Medicaid is the government program that pays for, among other things, long-term care for the elderly and the disabled. For millions of people who are disabled and poor, Medicaid pays for acute health care, dental care, respite services, rehabilitation therapies, assistive technology devices, and other community-based services and supports.
OBRA ‘93, which was signed into law on August 10, 1993 by President
Clinton, renders
significant changes to the eligibility rules at Part II of the legislation
(all amendments are to 42
U.S.C. sec. 1396 et Seq.). The new Medicaid rules were designed to restrict
elderly persons from
rearranging their finances in order to qualify for Medicaid to pay for their
long-term nursing home
care. For the most part, the new law limits the ability of elders to transfer
their assets to their adult
children or to trusts known as “Medicaid Qualifying Trusts” in
order to qualify for Medicaid.
However, there are two major exceptions to the new transfer-of-asset rules
that have a tremendous
impact on the lives of persons with disabilities. These changes are positive
changes and expand our
ability to help persons with disabilities to preserve their assets and still
qualify (or remain qualified)
for Medicaid.
First, however, the bad news: OBRA ‘93 increased
the periods after a transfer of assets
during which the individual will be ineligible for Medicaid. This so-called “look
back” period has
been extended from thirty (30) months to thirty-six (36) months for outright
gifts. The “look back” period was also extended to sixty (60)
months for transfers to irrevocable trusts, which largely
eliminated the ability of most families to use trust arrangements to protect
assets.
Another piece of bad news is that the new law eliminated a person’s
ability to disclaim an
inheritance. If a person with a disability was in line to receive an inheritance,
and if the receipt of
this inheritance would jeopardize his or her eligibility for government benefits,
prior to OBRA ‘93,
he or she could simply disclaim the inheritance. OBRA ‘93, however,
treats disclaimers as a transfer
of an asset and a person will lose his or her eligibility for Medicaid if
he or she disclaims an
inheritance.
Now for the good news: OBRA ‘93 created two exceptions
to the transfer-of-asset rules [see
42 U.S.C. Sec. 1396(d)(4).], which expanded an attorney’s ability to
help persons with disabilities,
and their families, remain qualified for Medicaid, despite having excess
assets in their name.
First, a person going into a nursing home, who otherwise would not qualify
for Medicaid
because of the value of his or her own assets, can qualify for Medicaid payment
of his or her nursing
home care by transferring assets to an irrevocable “OBRA ‘93" special
needs trust for the benefit of
a person with a disability. Unlike other transfers of assets, there is no “look
back” period for these
transfers. The individual with a disability who is the beneficiary of the
trust must be under the age
of sixty-five (65) and must be disabled as defined by Social Security regulations.
Second, if a person with disabilities, under the age of sixty-five, has money
in his or her own
name (for example, because of a lawsuit settlement, direct inheritance, savings,
or gift), the parent
or guardian of the disabled person can create a special needs irrevocable
trust and arrange for the
transfer of the individual’s assets to the trust. If the parents are
deceased and the individual with
disabilities does not have a guardian, the individual can petition the court
to create an OBRA ‘93
special needs trust. Once the funds of the disabled person have been transferred
to the trust, he or
she will be immediately eligible for Medicaid.
When the disabled individual dies, the state is entitled to reimbursement
from an OBRA ‘93
trust to the extent that it has provided Medicaid funds to that individual.
If there are any assets left
after the state has been reimbursed for the amount of Medicaid services paid
by the state, the
remainder of the trust can be transferred to other family members or charities.
OBRA ‘93 trusts are
sometimes referred to as “pay back” trusts because of this reimbursement
requirement.
PLEASE NOTE: These trusts do not replace the need for
families with a disabled individual
to write an estate plan that enables a disabled family member to benefit
from an inheritance and
remain qualified for government benefits. Families still need to incorporate
a special needs trust into
their estate plan if they have a family member with a disability. With proper
planning, parents can
leave the remaining trust estate to other family members when the disabled
beneficiary dies. There
is no “pay back” requirement in a traditional special needs trust.